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Social Learning and Monetary Policy at the Effective Lower Bound

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  • JASMINA ARIFOVIC
  • ALEX GRIMAUD
  • ISABELLE SALLE
  • GAUTHIER VERMANDEL

Abstract

This paper develops a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation‐less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchoring to the central bank (CB)'s target and coordinate on particularly persistent below‐target paths. The welfare cost associated with persistent low inflation may be reduced if the CB announces to the agents its target or its own inflation forecasts, as communication helps coordinate expectations. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation.

Suggested Citation

  • Jasmina Arifovic & Alex Grimaud & Isabelle Salle & Gauthier Vermandel, 2025. "Social Learning and Monetary Policy at the Effective Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(2-3), pages 439-475, March.
    • Handle: RePEc:wly:jmoncb:v:57:y:2025:i:2-3:p:439-475
    DOI: 10.1111/jmcb.13133
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